Fine Print Can Shorten Your Time To Sue
Maybe you’ve got a new job and you’re being asked to sign a standard employment contract. Or maybe you are an existing employee and your company is belatedly putting written agreements into place. Or, maybe you are an employer or a small company who hires workers under a written contract, either as employees or independent contractors. Or maybe you are an independent contractor using your own contract to get work. Or maybe, you are a credit card holder, house purchaser, or other consumer signing a detailed contract. A recent Michigan Court of Appeals decision holds a warning: the signer of any contract needs to read all the way through, and very carefully.

In the Fagin case, a Michigan court decided that a contract can shorten the period of time for starting a lawsuit–to a period much shorter than the period automatically provided by law. Fagin was an employee who consulted a lawyer and decided to bring a lawsuit after termination of his employment. Fagin had signed a standard employment agreement that contained a provision limiting his time to sue to 12 months from the date of his termination. He started the lawsuit more than a year after he was fired. The court said that he was too late–the contract he signed was effective in reducing his time to sue.

Huh? What’s a limitation period?
The “limitation period” for a lawsuit is a highly technical and frequently misunderstood concept in law. Most of the public thinks that a company or individual can bring a lawsuit pretty much any time–this myth is fueled by media reports of “new evidence” leading to murder charges, war crimes, and other criminal accusations which are sometimes re-opened or brought by a prosecutor decades after the act.

In civil lawsuits, the limitation period is a statute that cuts off the time to sue. It’s a different time length for each different type of claim. So, for example–Michigan law says that a party to a contract has a six-year limitation period to start a lawsuit for violating the terms of the contract. The statute of limitation for medical or legal malpractice is two years; for copyright infringement it is three years; for criminal copyright prosecution it is five years. While civil law limitation periods are pretty similar throughout the US, they do differ from state to state. So, it’s important to know which state’s law applies to a contract, to understand how much the time to sue has been shortened. Six years is a pretty long time to think about liability–so many employers and small companies have contracts that limit the time to sue to a much shorter period, like one year. If a contract is silent on the topic, the period provided by law automatically applies.

The court in Fagin was considering a lawsuit based on employment. Employment is a contract between two parties, whether or not there is a written agreement. The automatic limitations period would have given Fagin a full six years–except that the terms signed by Fagin contained language limiting the right to sue to only one year. (This issue is usually buried in the boring stuff near the end of the contract.) The court held that one year was reasonable (but that it wouldn’t have been, if there was not adequate time to research and file a lawsuit). How short is too short? Other Michigan employment cases have held that a limitations period of as little as six (6) months can be reasonable! This is not very much time to find and hire a lawyer–and evaluate whether there is a good case or not–and file it.

“I Didn’t Read The Contract” Didn’t Work
What about Fagin’s claim that he hadn’t read the contract completely and didn’t notice or understand the limitation language? Well, that one didn’t work. Neither did the argument that Fagin didn’t have a choice and had to sign the contract “as is”, or he would have lost the job. The court found that Fagin had been given time to read the contract and even consult a lawyer to help interpret it if he wanted. The choice to accept the job or not, with the required contract, was his. The contract even contained language that Fagin’s signature meant that he had “read and understood” the whole agreement.

Before You Sign
The Fagin case is applicable to virtually every Michigan contract a consumer, employee or businessperson will ever face. Whether you are buying a house, starting a company, or taking a new job, life involves lots of written agreements. Here are some simple tips:

1. Read a contract entirely through before you sign it. If you don’t understand something, ask a lawyer to review it before you sign it. A lawyer should review the whole contract briefly, just to make sure that other parts of the contract don’t affect the part you are worried about.

2. If you sign a contract with a short limitation period or lawsuit cutoff, make note of it. If you have any legal problems with this relationship down the road, you may need to make a decision about suing within a few weeks of the legal problem.

3. If you have a form contract you use, for others to sign, check whether it has a limitations period or is silent on the topic.

4. If you are a small business, landlord, or general contractor, consider whether all your form contracts should be revised by your attorney to shorten the limitations period, to cut off your legal exposure to lawsuits after termination.